International Business

by Daniels and Radebaugh

Chapter 12 International Business Negotiations and Diplomacy
© 2001 Prentice Hall 12-1

Objectives
To show the common and conflicting interests between countries and MNEs To illustrate negotiations between business and government in an international context To trace the changing roles of home-country governments in settling MNEs’ disputes with host governments To clarify the role of companies’ public affairs and political behavior in international business To explain the position of companies and governments in the uneven global enforcement of intellectual property rights

© 2001 Prentice Hall

12-2

Introduction Operating terms of international companies • Are influenced by governments of home and host countries • Shift as priorities shift and as strengths of parties change Negotiation of operating terms is where business-government relationships become difficult • Governments may refuse companies original or continued operating permission • Companies will not operate unless their terms of business are favorable © 2001 Prentice Hall 12-3 .

Home.and Host-Country Influences on Companies’ Use of FDI OPERATIONS Business/government negotiations OBJECTIVES STRATEGY Governmental enhancements and restrictions OPERATING TERMS © 2001 Prentice Hall 12-4 .

Governmental versus Company Strength in Negotiations Hierarchical view of governmental authority • Governments have regulations affecting international business • Companies accept regulations as ―givens‖ – will comply. or avoid regulations Bargaining view • MNEs and host countries have mutually useful assets • Bargaining school theory—negotiated terms for a foreign investor’s operations depend on how much the investor and host country need each other’s assets • Alternative sources for acquiring resources affect company and country bargaining strengths • Bargaining relationship depends on perception of it as zero-sum game © 2001 Prentice Hall 12-5 . circumvent.

Governmental versus Company Strength in Negotiations (cont.) • Country bargaining strength—based on size of markets and political stability – incentives appealing if they fit companies’ corporate strategies and government has credibility to fulfill its promises • Company bargaining strength—varies by industry – type of bargain struck depends on the number of companies offering similar resources – company likely to gain a high percentage of ownership in foreign operations when they control certain types of assets » technology » marketing expertise » ability to export output » local product diversity © 2001 Prentice Hall 12-6 .) Bargaining view (cont.

companies’ home governments help them negotiate © 2001 Prentice Hall 12-7 .or host-government’s influence on MNE tempered by political interests and relations of the two governments • When economic and political stakes are high.Governmental versus Company Strength in Negotiations (cont.) Joint company activities—countries encourage domestic companies to consolidate to counter dependence on foreign companies • Companies from different countries invest jointly to improve later negotiations – government may be hesitant to deal simultaneously with more than one home government Home-country needs—achieve economic objectives • Provides incentives or imposes restrictions to gain its due share of rewards • Home.

Governmental versus Company Strength in Negotiations (cont.) Other external pressures on negotiation outcomes • Decision makers in business and government must consider opinions of other affected groups – governments are particularly constrained » local companies » political opponents – companies face pressure from a variety sources » stockholders » workers » consumers » governmental officials » foreign groups © 2001 Prentice Hall 12-8 .

or terminate operations in a foreign country • Used to establish terms for direct investment and other operating arrangements • Home.and host-country governments may negotiate loans. investment guarantees. conduct. and overall economic and political relationships • Interrelated negotiations Government-Company © 2001 Prentice Hall 12-9 .Negotiations in International Business Negotiations—means by which a company may initiate.

) Bargaining process • Acceptance zones – begins with an array of proposals » some proposals are used as a basis of compromise or as tokens – agreement occurs only if there are overlapping acceptance zones • Range of provisions – domestic and foreign negotiations vary in degree – governments vary negotiating agendas toward foreign investors – most governments offer investment incentives to attract MNEs – companies agree to many performance requirements intended to help countries achieve economic and noneconomic objectives © 2001 Prentice Hall 12-10 .Negotiations in International Business (cont.

Acceptance Zones in Negotiating a) No overlap in acceptance zones 0 Company’s acceptable ownership 51% to 100% 49 51 100 100 75 51 49 Government’s acceptable ownership 51% to 75% 0 b) Overlap in acceptance zones 0 Company’s acceptable ownership 25% to 100% 100 49 25 100 75 51 Government’s acceptable ownership 51% to 100% © 2001 Prentice Hall 0 12-11 .

and foreign nationals have been trained to direct operations.) Renegotiations—terms for continued operations may be rebargained • Company has greatest bargaining strength before it makes investment in a foreign country • Theory of the obsolescing bargain—erosion of MNE’s bargaining strength – after capital and technology transferred abroad.Negotiations in International Business (cont. parent company needed less – company that is responsive to local economy can maintain or improve its bargaining position by offering additional resources needed by host country – host country becomes less attractive as a place for investment if it pushes too hard on foreign companies © 2001 Prentice Hall 12-12 .

versus low-trust societies – monochronic versus polychronic cultures – differences in the importance of punctuality Language factors—difficult for negotiators to find words to express their exact meaning in another language • Use of interpreters prolongs negotiations – cultural factors determine whether interpreters are acceptable © 2001 Prentice Hall 12-13 .Behavioral Characteristics Affecting Negotiations Cultural factors—cultural differences may lead to misunderstandings and mistrust • Areas of possible misunderstanding include: – individualistic versus collectivist societies – low-context versus high-context cultures – pragmatist versus idealistic cultures – high.

) Culturally responsive strategies—negotiators from different cultural backgrounds do not necessarily behave according to their culture’s norms • Counterpart may be an exception to the norm • Counterpart may know the other’s culture and be adaptive to it • Five strategic responses possible for negotiating with a foreign counterpart Professional conflict—differences in professional status between business and governmental negotiators may create conflict • Time required for each to understand and appreciate other’s point of view • Possible that neither will attempt to develop a relationship designed for long-term objectives © 2001 Prentice Hall 12-14 .Behavioral Characteristics Affecting Negotiations (cont.

Induce counterpart to follow one’s own script 4. Improvise an approach (effect symphony) Medium Low .Culturally Responsive Strategies and Their Feasibility High 1. Follow counterpart’s script High Counterpart’s familiarity with negotiator’s culture 5. Adapt to the counterpart’s script (coordinate adjustment of both parties) 3. Employ agent or advisor (involve mediator) Low Medium Negotiator’s familiarity with counterpart’s culture © 2001 Prentice Hall 12-15 2.

Behavioral Characteristics Affecting Negotiations (cont.) Termination of negotiations—settlement deemed impossible • Method of cessation of negotiations is important – may affect future negotiations – tendency to blame other for failure of talks – both parties should be allowed to save face Preparation for negotiations—role-playing • Negotiators better able to anticipate responses and plan their own actions • Hard to simulate stress-related characteristics of negotiations • Location of negotiations may give one side an advantage in bargaining © 2001 Prentice Hall 12-16 .

aid. adequate.Home-Country Involvement in Asset Protection Companies concerned that foreign countries will appropriate their assets • Urge home-country governments to intercede on their behalf to protect these assets • International standard of fair dealing—host governments should give foreign investors prompt. and influence with international lending agencies © 2001 Prentice Hall 12-17 . and effective compensation • Shift in host-countries’ priorities toward attracting FDI rather than expropriating it – less concern among home countries about the need for intervention to protect investors Dependencia theory—emerging economies have practically no power as host countries when dealing with MNEs • Home countries need not rely on military threats – use trade pressures.

commerce.) Use of bilateral agreements—improve foreign investment climates • Provide home-country insurance to investors – agree to settle investors’ losses on a government-togovernment basis • Other types of bilateral agreements include treaties of friendship.Home-Country Involvement in Asset Protection (cont. and navigation as well as prevention of double taxation • Multilateral agreements and settlements: FDI and trade—disputes handled by a neutral country or group of uninvolved countries • Government-to-government trade disputes largely handled by World Trade Organization (WTO) • International Center for Settlement of Investment Disputes— arbitration center • NAFTA tribunal handles regional disputes © 2001 Prentice Hall 12-18 .

countries differ in their approaches • Patents—Paris Convention – current cross-national protection of patents achieved through: » Patent Cooperation Treaty (PCT) » European Patent Convention (EPC) » European Economic Community Patent Convention – patent-infringement battles are costly.Home-Country Involvement in Asset Protection (cont.) Multinational agreements: Intellectual property rights (IPRs)—cover both industrial property and artistic property • Countries differ in their protection of IPRs – emerging countries offer less protection – even with similar levels of protection. and hard to prove © 2001 Prentice Hall 12-19 . complex.

or copyright – manufacturers’ associations created to deal with piracy – WTO—taken over administration of international property rights – companies taking steps to limit piracy © 2001 Prentice Hall 12-20 . trademark.) • Trademarks—protects brand names – some brand names have entered public domain – Trademark Registration Treaty—offers cross-national protection of trademarks • Copyrights—protect published and recorded materials – Universal Copyright Convention and Berne Convention— major cross-national agreements • Piracy—production without consent of the firm holding the patent.) Multinational agreements: IPRs (cont.Home-Country Involvement in Asset Protection (cont.

issued voluntary code for foreign operations of American companies © 2001 Prentice Hall 12-21 .S.Collective Actions to Deal with International Companies Actions of MNEs a cause for concerns for governments • League of Nations—first attempt to regulate international companies on multilateral basis • U. Center on Transnational Corporations – collects information on MNE activities – a forum for publicizing common complaints • Organization for Economic Cooperation and Development— approved a code of conduct • Nongovernmental organizations and industry associations have instituted codes dealing with specific practices • U.N.

Corporate Citizenship and Public Relations Companies publicize good-citizenship activities • Business conduct that satisfies social objectives • Nonbusiness functions that help society MNEs under conflicting pressures from different groups • MNE responses often perceived as defensive Companies work to increase the number of supporters • Use advocacy-publicity to win support for international activities Companies mitigate criticism by: • Permitting local managers to determine policies • Consulting with stakeholders about employment • Foster participation that develops local proponents • Take on additional social functions MNE may have to be uncompromising with government © 2001 Prentice Hall 12-22 .

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